Corporation Tax loss relief and EMI qualification. Are you trading with a view to profit?
If your company has made a loss and you want to claim Corporation Tax loss relief, the company must be carrying on a trade “with a view to the making of a profit in the trade or so as to afford any reasonable expectation of making such a profit”.
There is a similar test for EMI options: shares must be in a company which, amongst other things, is carrying on a qualifying trade “on a commercial basis and with a view to the realisation of profits”.
So what does this mean in practice?
The tests for Corporation Tax relief and for EMI options are slightly different but a decision in the case of Beacon Estates (Chepstow) Ltd V HMRC published on 16th July 2014 gives some helpful guidance.
First, the First Tier Tribunal followed the principle that “with a view to” meant “a realistic reasonable possibility that” as put forward in MacDonald v Dextra Accessories Limited.
Secondly, the fact that a company is carrying on the business on a commercial basis, is not sufficient. In Beacon, HMRC accepted the commercial basis element but disputed the view to profit element.
Thirdly, the reasonable expectation of profit meant what might realistically happen but there was no specified time limit for the profit to happen and any profit did not need to be sufficient to recover losses previously made.
Hopefully everyone reading this is making great profits, so that this is not a real problem for you, however if you do have any issues or concerns in connection with your EMI scheme, please do feel free to call Fiona Bell or one of the team at RM2 on 020 8949 5522.